Berger Paints holds some promise

Berger Paints held the number one spot in’s TOP15 list for 2021 based on its performance for the nine months ended September 2020, which has changed with the failure for sales growth to continue into the final quarter.
Revenues climbed eight percent in the September quarter to $574 million, with a gross profit of $304 million. Profit suffered a sharp fall in the June quarter, with sales negatively impacted by the partial closure of some businesses resulting from the spread of the covid-19 pandemic in the country. Revenues for the nine months were down, with profit after tax coming in with a loss of $60 million. Revenues for the fourth quarter to December failed to enjoy the level of growth in the September quarter and dipped against the similar quarter in 2019.
Audited financials for the full year show revenue for 2020 of $2.37 billion, six percent below 2019 figures, with the fourth quarter dipping just two percent at $877 million versus $892 million in 2019. Losses suffered in the earlier part of the year were simply too much for the company to overcome and recoup. Profit before tax for the year was down a noticeable 72 percent to $12 million, but profit before tax for the December quarter of $38 million was vastly better than the loss of $9 realised in the 2019 period. The December quarter profit after tax of $32 million was vastly better than the $11 million in 2019.
Direct operating cost declined by 4 percent or just $38 million to $1.22 billion for 2021. Staff cost also declined from $558 million to $512 million.
At $211 million, cash and bank balances fell 64 percent in 2020, down from the $585 billion recorded at the end of 2019 as the company paid down the $655 million owed to fellow subsidiaries by $552 million. Current assets of $1.3 billion include trade and other receivables of $575 million and inventories of $446 million, down from $639 million in 2019.

Berger Paints is one of IC Insider’s TOP 10 stocks.

Current liabilities ended at $484 million for the financial year, down from $1 billion in 2019, with amounts owing at the end of 2020 include $148 million due to the parent company and $102 million due to fellow subsidiaries. Shareholders’ equity closed out the year at $1.15 billion. The only interest bearing debt was for leasing, amounting to $65 million.
Earnings per share for 2020 was just 5 cents compared to 14 cents in 2019. projects 2021 earnings of $1.50 as the company benefits from recovery of sales that fell out in 2020 due to the effects of Covid and increased sales from a buoyant construction sector, relatively new automotive paints and better data usage from the new IT system.
The stock last traded at $13 on the Main Market of the Jamaica Stock Exchange and is now at the lower end of the ICTOP10 stocks for 2021 at a PE of 9 times 2021 earnings, but it could surprise with better than expected results.

Why the Top 15 Junior Market stock picks?

Junior Market stocks were affected by the dislocation caused by the COVID-19 virus more than their Main Market counter path, with their prices suffering more as well, but since March last year, the Junior market delivered greater returns than the majors. For 2021 to date, Junior Market stocks are up almost 10 percent while the main market is down modestly.

ICTOP10 Junior Market stocks now.

The future for some stocks in 2021 is clear, but for others, it is a bit hazy as they await the resumption of normal business operations. This publication sets out the rationale for the TOP15 selection in the Junior Market.
Since we published the TOP 15 lists at the beginning of the year, the Junior Market is up almost 10 percent with outstanding performances from some of the selections, with most moving out of the TOP 15 lists except Grace Kennedy and Caribbean Cream. Jamaican Teas is up 69 percent, Mailpac 31 percent, Caribbean Cream 11 percent, Lumber Depot up 60 percent, QWI Investments up 38 percent, and Grace Kennedy up 19 percent.
Assumptions were made pertaining to recovery and the extent for some stocks in the TOP15 list. Some investors may start to react to recovery potential for some and drive prices up before full recovery takes place. Stocks falling into this category are Caribbean Producers, Elite Diagnostics, Express Catering, Jetcon Corporation, Main Event, Stationery and Office Supplies.
The forecast is for price movements to get to their targets by March 2022. Earnings per share for some stocks are based on 2021/22 EPS for companies with year ending up to July 2021.
Lasco Financial –EPS 50 cents Current PE 5.4
Lasco Financial made large provisions for loan losses in the 2020 fiscal year amounting to $651 million and plunged it into a $57 million loss for the year. They provided an additional $193 million in the June quarter that pushed the quarterly results into a $106 million loss.
Provision for loan losses was down to $152 million at the half-year and fell further to just $9 million for the nine months to December, thus reversing the provisions up to September.
The company recorded profit after tax for the September 2020 quarter of $136 million, with Profit after tax for the six months to September amounting to $30 million.
The December 2020 revenues were down from September by $88 million to $527 million and below the 2019 quarter by $73 million. The main reason for the fall in revenues in December versus 2019 is due to a $70 million fall in interest income from loans. Loan interest income grew from$143 million in the September quarter to $158 million in the December quarter. Profit to December is up to $154 million from $77 million in 2019. Full-year results could come in at $300 million
In their September quarterly, the company indicated that “there will now be a shift towards lending again, however, as opportunities for lending are now beginning to manifest as businesses are adjusting to the new normal, with some embracing new opportunities.” The shift to increase lending will add to revenues and profit going forward, with IC projecting 20 cents per share to March and 50 cents for the fiscal year 2022. The company traded at $2.76 at the end of December and last traded at $2.70.
Shareholders equity stood at $1.69 billion and borrowed debt of $1.7 billion at the end of December 2020.
Caribbean Cream – EPS 95 cents Current PE 5.
“A breath of fresh air” is how the recently opened Ocho Rios Caribbean Cream depot was described by a customer, according to the principals of the company in a report to shareholders accompanying the third-quarter results. This new location is expected to contribute positively to the growth of the product and results going forward.
For the November quarter, profit after tax grew 36 percent to $11 million and 96 percent to $85 million for the year to date. Revenue improved by 11 percent for the quarter to $441 million and eight percent for the nine-month period. Administrative and marketing expenses grew by 15 percent for the quarter and four percent for the year, totaling $127 million and $343 million, respectively.
Earnings per share doubled from 11 cents to 22 cents for the nine months and moved from two cents to three cents for the November quarter. The final quarter is the best for revenue generation and profit. Accordingly, forecast is for full-year earnings of 50 cents for the year to February 2021 and 95 cents for the following year.  Shareholders’ equity grew by 12 percent over November 2019 to $818 million and the company has loans payable of $226 million. The company traded at $4.20 at the end of December and at $4.65 on Friday.
Caribbean Producers – EPS 65 cents Current PE 4.
This company’s profit was badly affected by dislocation in the tourism sector and full recovery will depend on the industry recovering substantially as a large portion of its revenues is dependent on the fortunes of the sector. CPJ started their new fiscal year with an improvement over the final quarter ended in June 2020 but notably off the mark compared with the corresponding quarter for 2019.
Revenues dropped by 65 percent from September 2019 to US$9.3 million, with gross profit falling 64 percent to US$2.4 million from 2019 out turn. The improvement over the June quarter coincides with the reopening of hotels and it should pick up further with Jamaica’s tourist arrivals hitting the 90,000 mark in December, from an average of less than 50,000 in the September quarter. Revenues in the December quarter climbed further to $15 million
Selling and administrative expenses declined slower than gross profit, falling by 51 percent, while depreciation charges jumped from $767 million to $1.07 million. CPJ moved from a loss of US$258 thousand in 2019 to a loss of US$1.85 million in the September quarter and $850,000 in the second quarter.
Shareholder’s equity stood at US$15.3 million with loans payable of $30.4 million and is highly over-leveraged at the end of 2020. The overleveraging at this time is a big negative just in case things take a longer time to return to some level of normality. Regardless, this is an area of operations that needs urgent attention.
The stock is likely to be a late bloomer, with earnings per share projected at 65 cents for the 2022 fiscal year ending June, assuming near full recovery in the hotel sector. The stock traded $2.80 at the end of December and traded at $2.67 on Friday. The potential for recovery exists, but the heavy debt loan makes it a riskier investment.

Main Event revenues recovering.

Main Event – EPS 67 cents Current PE 4.6
The arrival of COVID-19 virtually crippled the entertainment industry as nighttime curfews and social distancing halted many entertainment activities, a big earnings area for the company.
For the quarter ending July 2020, revenues were slashed 87 percent to $59 million and for the nine months to July 2020, dropped 31 percent from $1.37 billion to $945 million. Expenses were down by 98 percent for the quarter to $19 million and 31 percent for the year to $521 million.
MEEG recorded a net loss of $46 million for the July quarter and a net profit of $8.7 million for the year to date.
The depreciation charge accounted for $31 million of the quarter’s loss and $95 million for the nine months, resulting in positive profit before the depreciation charge and a small quarterly cash loss in the July quarter.
For the full year, the company reported a loss of $18 million with a depreciation of $148 million for a strong positive profit before depreciation. In the final quarter, revenues climbed over July quarter by 69 percent to $101 million and recorded a much lower loss of $27 million than in the third quarter with a depreciation charge of $53 million. It is unclear when the operation will return to good health. The early signs of improved revenues and positive cash flows augur well and placed them in a good position to weather the current economic storm with positive cash flow.
Cash funds amount to $132 million and loans of $238 million. Shareholders equity stood at $534 million at October 2020.
The company traded at $3.20 at the end of December and traded at $3.04 on Friday.
Elite Diagnostic – EPS 60 cents Current PE 4.6
The company came to market in 2018, with the previous year’s pretax profit at $60 million from just one location. Since then they have tripled locations with revenues rising 67 percent from $263 million in 2018 fiscal year to $439 million last year, but profit fell sharply with startup cost out weighting revenue increase. TOP10 Main market stocks.

A number of negative developments were at play driving up cost without the necessary increase in revenues. Expansion by its very nature incurs cost ahead of revenue generation. The company encountered problems with equipment, resulting in unscheduled repairs and cost and loss of revenues and finally, the advent of Covid-19 reduced opening hours and revenues.
The first quarter numbers to September last year were heavily impacted by reduced operating hours resulting in curtailed operations. The Directors note that a CT machine was not functional for an extended period, adversely affecting procedures they were able to undertake. The compounded fallout was net loss of $10.3 million for the September quarter down 162 percent from a net profit $16.7 million recorded for the September 2019 quarter and is a slight improvement over the June quarter’s loss of $12.5 million.
For the year to June 2020, net profit came in at just $8.6 million, an 83 percent drop from the previous year’s profit of $51 million as well as a decline from a profit of $23 million up to December 2019 with the March 2020 quarter showing strong promise with revenues of $236 million and profit of $21 million.
Revenue slipped by 7 percent for the September quarter to $110 million compared to 2019 but importantly, was up 20 percent over the June 2020 quarter. Operating expenses increased by six percent year-over-year to $42 million. The Directors state that the company has seen month-over-month revenue growth at the recently opened St. Ann location and expect to positively impact revenues for 2021.
The history of the company suggests, investors need to be patient for things to return to normal and for the St Ann branch to start generating adequate revenues and then profit.
Shareholder’s equity stood at $449 million at the end of September 2020, down from $460 million at the end of June 2020 and borrowed funds stood at $219 million. At the close of 2020, Elite Diagnostic traded at $3 at the end of December and traded at $2.76 on Friday. Earnings of 60 cents per share projected for the 2021/22 fiscal year.
Jetcon Corporation – EPS 15 cents Current PE 5
Reeling from the impact of COVID-19, profit at Jetcon dropped significantly year-over-year, for the quarter and the nine month period ending September 2020, which is expected to lead to vastly reduced 2020 full year results compared to 2019. A profit of $2 million was reported for the September quarter, down 91 percent from 2019 and $5.6 million for the year to date, a decline of 88 percent. The result was an improvement over the June’s quarter loss of $6.7 million. Sales fell 45 percent for the quarter to $153 million and by 38 percent to $467 million for the year but reflected a 78 percent improvement on the June quarter’s figures of $86 million.
Administrative and other expenses was flat at $23 million for the September quarter versus the similar period in 2019 and fell to and $71 million year to date versus $80 million in 2019.
The industry goes through years of boom and bust and could be returning to a period ahead of growth in revenues. The industry has gone through three years of declining sales, an unusual development that bodes well going into 2021 as it could mean that the downward cycle is at an end. Importantly, due to the poor sales in the second quarter last year, resulting in a loss, the company should enjoy better June quarter results all things being equal if the country continues on its current path of recovery.
Net current assets stood at $444 million at September 2020. Shareholders equity stands at $552 million and it has very limited debt that provides a good base for continued operations going forward.
The company traded at 79 cents at the end of December and traded at 77 cents on Friday with earnings per share that could rise in the region of 15 cents for 2021 assuming some major about-turn in demand for cars.
Medical Disposables – EPS 80 cents Current PE 5.6
Medical Disposables enjoyed a 12 percent increase in revenue during the quarter ending September 2020 to $630 million. For the six months, revenues hit $1.14 billion, only a two percent increase but Direct Expenses jumped 11 percent for the quarter to $480 million and $877 million for the six months. There was an after tax loss of $6 million compared to an after-tax profit of $6 million for the quarter ending September 2019. The six month figures stood at a loss of $13 million and a profit of $23 million respectively. The General Manager notes the impact of the one-off finance cost pushed the charge for the quarter to $36 million, without which the company would have generated a profit around $20 million.  The company reported profit of $25 million or ten cents per share in the December quarter, up from $6.5 million in 2019, with sales rising moderately from $603 million to $626 million.
While is projecting ongoing earnings of 30 cents per share for the fiscal year to March. The performance is expected to improve, with earnings of 80 cents per share for the 2022 fiscal year.
The company had net current assets of $374 million, inclusive of cash and bank balances of $23 million at the end of September, a 271 percent increase over the company’s cash position at the end of September 2019. Total equity stood at $846 million with borrowings of $735 million.
Medical Disposables ended the calendar year at $4.25 at the end of December and traded at $4.20 on Friday with earnings of 60 cents per share. Investment in the stock is not without some risk in the short term, but there could be upside surprises if the company attracts new business lines as they have been doing in recent years.
Caribbean Assurance Brokers – EPS 35 cents Current PE 5
According to the Chairman’s report decline in commission in all four divisions as well as a delayed renewal period for the international health insurance product, contributed to sluggish revenue for the period to September 2020. Total revenue for the quarter dropped 61 percent to $79 million and down by 37 percent for the nine months to $23 million. The company recorded a loss of $10 million, a drop from a profit of $62 million for the corresponding quarter in 2019. For the six-month period, losses stood at $23 million, down from a profit of $57 million recorded at the end of September 2019. Shareholders equity stood at $278 million at the end of September 2020, up from $230 million at the end of December 2019. CAB has net current assets of $107 million, a 12 percent increase over the corresponding period.  At the close of 2020, the stock traded at $1.89 and at $1.76 on Friday, with earnings per share of 25 cents for 2020.
Access Financial – EPS 2.70 cents Current PE 7.6
Access Financial is the classic case where looking ahead rather than focusing heavily on the recent past can pay off richly. The advent of Covid-19 in Jamaica meant dislocations for many businesses and loss of jobs. Access had to face this onslaught head-on resulting in a massive increase in provisioning for expected credit losses. Most of that seems to be behind them now, with the September quarter showing recoveries of some doubtful loans and lower provisions made for additional expected losses. The company still provided $111 million in the quarter for doubtful debt and $178 million for the six months, compared with $105 million and $185 million in 2019 respectively and made further provision of $111 million in the December 2020 quarter, putting total provisions around $800 million and covering more than half of loans overdue for up to 30 days. This is an indication that provisions in the near future could be much more moderate than in the past two years.
Profit suffered in the current fiscal year as net profit fell 75 percent to $28.5 million for the September quarter and 77 percent to $62 million for the six-month period. For the December quarter, Profit before taxation rose to $94 million from $33 million in the September quarter, compared to $121 million in December 2019 after another round of heavy loan loss provision.
Net operating income fell 20 percent for the six months at $887 million and 20 percent from September 2019 at $457 million, but the latter was an improvement on the June 2020 quarter of $430 million, by six percent. For the December quarter, it grew to $460 million. Meanwhile, at $370 million, total interest income fell 12 percent from the September 2019 quarter versus 2019, but was down only two percent from the June quarter and increased further to $387million in the December quarter.
At the end of September, Loan receivables were down 13 percent to $3.9 billion from $4.47 billion at March 2020 and $4.4 billion at the end of September 2019 as the company increased bad debt provision curtailed lending up to that point. Loans advanced rose to just over $4 billion, which is an encouraging sign in pursue of an increase in revenues and profit going forward.
Shareholders’ equity stood at $2.3 billion. The company had loans payable of $2.65 billion, down from $3.1 billion in December 2019 and $3.2 billion at the end of March 2020. Cash and cash equivalents ended at $555 and total assets at $5.5 billion.
The stock ended trading in 2020 at $23.50 and traded at $21 on Friday. With earnings of $1 per share projected for the current fiscal year that would result in a PE ratio of 21 and a 2022 forecast of $2.70 per share, suggesting good potential upside for the stock price.

Stationery & Office Supplies hit a record high on Friday.

Stationery & Office Supplies – Montego Bay office.

Stationery and Office Supplies – EPS 70 cents Current PE 6
Gross profit was down 19 percent for the quarter and 26 percent for the nine months ending September closely matching the fall in sales that fell 18.6 percent to $240 million from $295 for the quarter and down 24 percent to $712 million from $933 million for the nine months to September 2020. Net profit for the quarter fell 70 percent to $7 million and 75 percent for the nine months to $29 million.
The Board of Directors notes that its third-quarter corresponded with a surge in COVID-19 cases in Jamaica. Despite falling below 2019 numbers, the company managed to improve its performance over the June quarter. SOS also acquired property on the adjoining lot and finished its new warehouse, a sign of expected growth in operations going forward.
Shareholders’ equity increased by five percent to $625 million, but net current assets fell by nine percent to $343 million, with a strong cash position of $112 million, up from $87 million at the end of September 2019 and $62.5 million at the end of December 2019, the company is set to weather the continued COVID storms.
The company should be seeing improved results in 2021, with schools and some businesses reopening, especially since June last year. The company should be seeing marked improvement in numbers in the March to September periods compared to 2020, when many businesses closed or operated with reduced activities.
The company’s stock traded at $4.54 at the end of December and on Friday at $4.50 with expected earnings of 20 cents per share for 2020. The stock is about fully valued but undervalued based on improved 2021 earnings.

Jamaican Teas traded the most shares on Thursday

Jamaican Teas CEO John Mahfood

Jamaican Teas – EPS 30 cents Current PE 11
The company enjoyed increased profit with interim results for the December first quarter of the 2021 fiscal year show sales rising 41 percent to $611 million and profit attributable to shareholders jumping 321 percent to $117 million from just $28 million in 2019.
The highlight for the quarter was the strong gain in export sales of 88 percent over the prior year. This contributed to manufacturing sales climbing 48 percent to $428 Million for the quarter.
What is known subject to continuity, since the end of the 2020 fiscal year, QWI Investments net asset value has gained 15 cents or around $200 million and with more apartment sales to be completed in the second quarter, the group should see these contributing to profit subsequent to the December quarter.
The group has borrowings of $432 million and cash funds of $317 million at the end of December. Investments amount to $1.7 billion with shareholders’ equity of $1.8 billion.
After a three-to-one stock split in November last year, the company enjoys increasing buying interest, with the price hitting record highs in recent weeks. Jamaican Teas ended the calendar year with the stock at $1.99 and traded at $3.35 on Friday. It is the leading Junior Market stock for the year to date.
General Accident – EPS 90 cents Current PE 5.6
Last year, the group recorded results of the Trinidad subsidiary, for the full year, compared to a few months in 2019, and the Barbados startup, for a shorter period. Up to the second quarter, the company seems to be bettering the operating performance of 2019 but clams provisions relating to Trinidad subsidiary. The full-year results showed profit down to 32 cents per share at $323 million for shareholders of the company.
Net premiums earned increased by 3 percent from $801 million to $823 million for the December quarter and by 14 percent from $2.45 billion to $2.8 billion for the year. Gross premium income jumped 52 percent from $1.78 billion to $2.7 billion in the final quarter and 12 percent from $10.7 billion to $12 billion with insurance ceded rising sharply. Claim expenses rose in the quarter from $218 million to $428 million and for the year by 49 percent from $1.2 billion to $1.79 billion. Management expenses slipped by 4 percent for the quarter to $348 million from $361 million and rose 21 percent for the year from $992 million to $1.2 billion. Investment income dropped for the quarter from $116 million to $61 million and fell from $230 million to $202 million for the year. Other income also fell in both periods, with the year ending at $19 million from $202 million.
It is the performance in 2021 that is important and that should climb nicely with the expansions getting more matured, while the Jamaican operation continues to add to profit.
Shareholders’ equity was $2.6 billion at the end of December. The company traded at $6.19 at the end of December and traded at $5.30 on Friday with earnings of 32 cents per share.

Lumber Depot dominated trading with

Lumber Depot – EPS 22 cents Current PE 12.5
Lumber Depot operates a full-service hardware store and acquired the assets and liabilities of the Lumber Depot business from the Blue Power Group effective August 2019.
Net profit jumped 76 percent for the October quarter from $20.5 million to $36.1 million and ended at $66 million for the six months to October 2020, representing a 79 percent increase from the corresponding period in which the business operated in the prior half in its own right as under the Blue Power group for a quarter.
The company recorded revenue of $338 million for the quarter, a seven percent year-over-year improvement. Administrative expenses fell 15 percent to $39 million for the quarter ending at $77 million for the half-year.
“We have had downturns in some areas that have impacted us, such as the Gordon Town Road collapse but we are able to see improvements in sales in other areas that have helped to balance any shortfalls.  Revenues and profits continue to be steady similar to the 2nd quarter which you will see when our next set of financials are published, “ the company’s Chief Accountant, Adrienne Jones, informed in response to a request about the company’s operations currently.
Shareholders equity grew by 34 percent to $258 million from $192 million at the end of April 2020. The stock price was $1.56 at the end of December and traded at $2.50 on Friday. Earnings per share came in at 5 cents for the quarter and nine cents for the half-year is projected by at 20 cents for the current fiscal year and 22 cents for the 2022 fiscal year.
Lasco Distributors – EPS 40 cents Current PE 8.5
Profit before taxation increased by 55 percent year-over-year for the December quarter moving from $188 million to $291 million. Pre-tax profit for the nine months climbed 41 percent from $618 million to $870 million. Taxation tripled for the quarter to $48 million and more than doubled for the nine-month period from $60 million to $139 million, leaving net profit rising 41 percent from $172 million to $243 million for the quarter and by 31 percent to $731 million for the nine months.
Revenue improved by six percent for the quarter to $5.2 billion and for the nine-month period to $15.2 billion. Operating expenses declined by 11 percent for the quarter and 12 percent for the nine months to $663 million and $2.02 billion, respectively, as management focused on cutting cost.
The company does all the sales for the manufacturing company; as such improved sales by them will positively impact revenues and profit.
Cash and investments climbed to $2.3 billion at the end of 2020, while shareholders equity stood at $6 billion at the end of December 2020 while borrowings were negligible. Lasco Distributors last traded at $3.68 on Friday with projected earnings of 30 cents per share to March and 40 cents for 2022.

Mailpac – EPS 30 cents Current PE 12
The Group continues to enjoy increasing strong profit growth despite the current pandemic, with revenue jumping 58 percent in the September quarter over the 2019 quarter, with profit more than doubling, helped by a is healthy profit margin at 62 percent. Revenues climbed from $301 million to $477 million and grew a stunning 30 percent over the June 2020 quarter with $366 million. For the year to September, revenues rose to $1.2 billion, 42 percent more than the $851 million recorded at the end of September 2019.
The company recorded a net profit of $149 million for the quarter, a solid 129 percent jump from the $65 million recorded for the September 2019 quarter. For the year-to-date, there was an even more sizeable growth of 150 percent, moving from $203 million in 2019 to $339 at the end of September 2020.
For the full year to December, Mailpac reported a 42 percent increase in revenues for the December quarter with a $512 million realised profit of $104 million, up from $97 million pretax for 2019. Cost of sales jumped 70 percent for the final quarter, much higher than the increase in revenues. Profit for the year ended at $443 million, with earnings per share of 18 cents with the increased direct cost in the final quarter robbing it of greater earnings. IC believes that this type of business will continue to grow as persons are attracted to the convenience that the service affords.
At the end of December, cash and equivalent stood at $292 million, while Shareholders’ equity stood at $571 million with little or no borrowings. A dividend of 6 cents was declared, payable in March and brought the total for the year to 15 cents.
The stock ended 2020 trading at $2.87 at the end of December and traded at $3.75 on Friday but traded as high as $4.43 in February before pulling back to close at $3.75 on Friday. projects earnings per share of 30 cents for 2021.

45% gains for ICTOP15 stock

Robust gains for some stocks after less than a month of trading in 2021 have shaken up ICTOP 15 stocks forcing a number of them out or at the edge of moving out of the 2021 TOP list. Jamaican Teas now the lead stock for the year, dropped out of the Junior Market list this week, with a rise of 45 percent since the start of the year.

Jamaican Teas is the leading JSE stock for 2021 to date with a 45% increase in price. 

This brings to two, stocks that have migrated from the Junior Market TOP15 so far. Jamaica Producers fell out of the Top 15 Main Market list with the price dropping to $19.81, from $21 but Margaritaville suffered a greater fall to replace it.
Jamaican Teas one of the top 15 stocks for 2021 scaled record highs this past week as more and more investors piled into the stock since the three for one stock split in November last year. The gain also follows the directors’ report for the September quarter results that stated  “Subsequent to the year-end, overall sales increased by 47 percent in October 2020, with export sales increasing 85 percent and a 10 percent increase in domestic sales. We have good orders in hand for November and these developments, along with booking of more real estate sales, hopefully, improvement in the investment portfolio should result in a good first quarter for the financial year 2021.”
Mailpac was the first to drop out of the list and now has gains of 29 percent so far in 2021. Lumber Depot surged to $2.10 on Friday but closed at $1.95 from $1.46 last week and now sits at 15th spot on the Junior Market TOP15 for 2021, with a 25 percent gain for the year to date. Reports in the newspapers indicate bullish sales expectations from Caribbean Cement and rising prices for some construction inputs.

MailPac is the Junior Market second-best performing stock for 2021.

The news pushed investors to snap up Lumber Depot stock and drove the price much higher, since. QWI Investments is up 17 percent since the end of last year to trade at 90 cents with the net asset value rising since the latter part of last year to sit at $1.18 as gains in both local and overseas stocks continue to add to the value of the company’s portfolio. The stock is now at 14th spot on the Main Market list. A large number of shares were overhanging the market and pressuring the stock price. Once they were bought out, the supply has shrunken leaving room for the price to recover.
Caribbean Cream posted eleven percent growth in sales for the November quarter and eight percent for the nine months, with profit rising 96 percent for the nine months and a 37.5 percent increase for the third quarter. The stock is up 18 percent for the year at the close on Friday and remains at the seventh position on the 2021/22 TOP15 list.
With interest rates at low levels on government bonds and expected to remain low for a protracted period, investors are becoming more comfortable with PE of 20 times earnings or more, according to the TOP 15 rankings the above stocks still have room to gain over 90 percent from the current price for the rest of the year.

It pays to read

Investment 2021 – Recovery for JSE markets

Add your HTML code here...

The JSE Junior and Main Markets retreated in 2020, due mainly to the impact of the COVID-19 on the economy and businesses. Both markets, however, began to struggle in the final quarter of 2019 as a number of new IPOs were either issued or scheduled to be issued, thereby sapping some of the liquidity from the market.
The markets may have been due for a correction anyway, based on their history. Prior to this period, the Main Market had only risen on two other occasions equalling or exceeding six years. Surprisingly, the market went on to move higher during a period of economic turbulence, from 1978 to 1987, nine years of annual gains and again between 1996 and 2004 for another nine-year spell. On the other hand, the Junior Market, for the first time, recorded five consecutive years of increases from 2015 to 2019.
In reality, the market closed higher in each year from 2014 to 2019 for six years’ unbroken run. The JSE Main Market fell 33 percent to the low in March and the Junior Market by 37 percent.  Since then, they have rebounded but not enough to take them out of the negative territory for the year.
The number of new IPOs coming to market in the past three years pulled liquidity from the Junior Market, which depends extensively on the involvement of individual investors. In 2018 and 2019, the Junior Market under-performed the Main Market, measured by way of the market indices. In 2020, both markets were down, with the Junior Market just edging out the Main Market index with a lower decline of 21 percent versus 22.6 percent. Even though 2020 was not a great year, some investors made money by buying some stocks at rock bottom prices when many investors were dumping.
The decline in the market gives some investors breathing space from the six years’ bull market and opportunities to pick up stocks at better valuations or prices than for the period up to March 2020.
The markets have been recovering since they bottomed in March with the Junior Market up 30 percent and the Main Market 16.6 percent. There are strong signals pointing to an upward move for both markets as they transitioned from a consolidating phase when investors were assessing developments in the economy and the stock market.  The Golden cross technical signal for the Junior Market points to that market heading back above the 3,000 points level within months. The Main Market is undergoing a bullish signal with short term moving average line crossing over the medium-term Moving Average a bullish signal. The Main Market is within an ascending channel that points to the All Jamaican index heading towards the 460,000 points range.
Market valuations are reasonable with the PE ratios based on 2020 earnings at 14.7 times for the Junior Market and 17 for the Main Market, a few stocks are priced higher than the average, with many prices well below. Based on 2021 earnings, the PE ratio is an average of 9.2 for Junior Market stocks and 14.7 for the Main Market. The large difference is an indication as to where the best values can be found for investors. Adequate liquidity can be a problem for the Junior Market and many investors need to take a longer-term view in some of these companies as it is sometimes difficult to buy or sell good volume at prevailing market prices under current market conditions.
The local economy is currently down sharply, compared to 2019, but information released by Statin shows the economy picking up from the depressed June quarter, when major areas of the local economy were closed due to COVID-19. However, there are signs that the recovery has been picking up the pace and could move higher if the Coronavirus does not have any greater impact.
While the restrictions placed on economic and social activity has eased since the June quarter, it’s not business as usual in many areas. Investors still need to keep an eye on COVID-19 developments globally and any likely effects on the local economy. Barring any negative developments, stocks highly exposed to tourism, construction, banks and some manufacturing entities could see revenues and profits improving in 2021.
The TOP Main Market stocks’ potential gains range from 70 percent to 290 percent. The Junior Market range is 145 percent to 400 percent. Quite a number of the TOP 15 are recovery candidates. In fact, the Junior Market is filled with these, of which there are six that suffered badly from the effects COVID-19 had on their customers or in dampening demand for their products. A few in the Main Market were partially affected but not as much as some Junior Market companies.
This year 2021, seems set to be the year of surprises as many stocks that suffered badly in 2020 could be making a major turnaround in revenues and profit, while some that may not fully recover could start showing good signs of returning to normalcy.
The TOP 15 Main Market stocks: Berger Paints, Grace Kennedy, Jamaica Broilers, Pan Jam Investment, Radio Jamaica, Victoria Mutual Investments, Scotia Group, QWI Investments, Wisynco Group, Carreras, Sygnus Credit Investments, JMMB Group, Caribbean Cement, Seprod and Sterling Investments.
The TOP 15 Junior Market stocks: Lasco Financial, Caribbean Producers, Caribbean Cream, Main Event, Elite Diagnostic, Jetcon, Medical Disposables, Caribbean Assurance Brokers, Access Financial, Stationery and Office Supplies, Jamaican Teas, General Accident, Lasco Distributors, Lumber Depot and MailPac.
While there are clear signs of improving economic conditions, the path for the year ahead is uncertain for a number of companies. Some that suffered badly in 2020 will be showing signs of recovery, but the timing of their return to fairly good health is unclear at this stage. Investors should be on the watch for these early signs in individual companies.
Banks suffered from the need to increase expected credit loss provisioning, but it appears that it may not be as bad as initially projected. As such, there is likely to be less provision for credit losses in 2021 for banks and other lenders.

JSE Main Market on a rebound and heading to 460,000 points based on the AJ Index.

For other companies, just the fact that the second quarter lockdown of the economy last year is unlikely to be repeated will result in second quarter results in 2021 being better than last year. This would be of benefit to Caribbean Producers, Elite Diagnostic, Jetcon and Stationery and Office Supplies.
Strong growth in the construction sector favours stocks such as Berger Paints, Caribbean Cement and Lumber Depot while a rebound in the tourism sector will help boost revenues for Caribbean Producers, Grace Kennedy, Jamaica Broilers, Wisynco Group and the banks.
The financial challenges caused by the coronavirus are likely to lead to some businesses seeking to merge or dispose of a majority interest to other entities. As such, there is the possibility that a number of listed companies could acquire some of them at good prices. This is a potential development that investors should be on the alert for.

Investment 2021 – economic recovery

The Jamaican economy grew 8.3 percent in the September quarter over the June quarter, with construction rising 7 percent over 2019 as signs of recovery from the highly depressed June quarter takes hold. This trend should continue as the tourism sector picks up the pace of recovery from a virtual lockdown between March and June.

The Hampshire Apartments complex built by Guardian Life.

With construction being the star performing sector for the September quarter, continued growth in this area is expected to continue into 2021 as new road construction, the building of houses and hotels continue. The country is short of factory and warehouse space; these areas could add to growth in 2021 and beyond.
As the hotel sector gradually picks up pace, the drag that the sector has on the rest of the economy should decline, as such other sectors serving the industry should also see improvements. Some of the sectors are transportation, manufacturing, agriculture, water, electricity and banking.
In all probability, the first quarter of this year is set to show a sharp fall in visitor arrivals compared to last that saw just over 574,000 stopover arrivals, with January and February at full capacity with 463,000 visitors but there were no visitors on April or May and just over 7,000 in June. The recent trend suggests that barring unforeseen developments, the 2021 June quarter numbers should show an encouraging out turn, indicating that the recovery continues apace. Visitor arrival numbers were the highest in November since the reopening, with just under 50,000 stopover visitors, down 76 percent from the 203,000 arrivals in 2019. That beats October with 45,000, which is ahead of July and August with over 41,000 stopovers. December final numbers are not yet in, but preliminary numbers put arrivals to December 28 at an encouraging 98,000 arrivals. The numbers should reach 110,000 by the end of the month or 39 percent of the 281,000 arrivals in December 2019. The trend since reopening in June is for a near gradual monthly percentage-wise improvement.
Rebound in tourism will increase the supply of foreign exchange to the market and hopefully, lend to greater stability of the rate even as the central bank rebuilds the Net International reserves.
The BPO sector seems set to grow, with employment stated to be moving from 40,000 to 50,000 during the year. Late last year, the president of the Global Services Association of Jamaica, Gloria Henry, told the Observer that the sector had rebounded to the point where it now employs some 39,000 people.
In reciting developments in the BPO industry, the Jamaica Observer newspaper reported recently the following: “According to Henry, in the Montego Bay Free Zone, where she operates, the information technology outsourcing portfolio has grown by 12.77 percent and the aim is to grow by 66 percent this year. Henry pointed out that the BPO industry leaders had started 2020 with a great deal of enthusiasm and were ready to implement projects in a number of areas to boost employment to 50,000.”
“We have navigated uncertainty very well and now with resilience, we are advancing towards the future,” said Henry as she indicated that five new BPO sites are scheduled to be launch in the first quarter of this year.”
Areas of the local economy that have social distancing restrictions will continue to be under pressure with reduced business activity. Areas such as live entertainment and, by extension, transportation will find it hard to recover fully in 2021.
Balance of trade data up to September, reported by the Statin, shows a sharp fall in the country’s import bill resulted in a billion-dollar reduction while exports declined by a much smaller amount, leading to a sharp improvement in the trade balance.
The government will be collecting more revenues as the economy gradually opens up and some areas of expenditure, such as support for the fall out of the Coronavirus, will be reduced.
Al in all, things are looking much better for a strong recovery in the overall economy for 2021, but it is unlikely to fully recover until 2022.
Under such subdued economic activity, interest rates should continue to remain low, but the unemployment rate that rose sharply in 2020 will gradually fall during the year.
Against the above development, the local stock market should deliver positive results in 2021 and real estate values should continue to increase.

The next big Junior Market run is nigh

The last time this signal was flashed, the market rose 600 points and before that 500 points. The Jamaica Stock Exchange Junior Market is sending out a strong signal that a big rally is ahead once more.
When technical readings for the Junior Market were going through a golden cross back in July 2019, the market rallied by more than 600 points and in 2018, the market put on 450 points after the signal was sent. How much gain will result in this round is unclear, but it could well take the market up another 600 points in a rally that could put it around 3,100 points, initially. Because the Junior Market index is a weighted one, not all stocks are going to provide the same levels of returns as such, the market move as measured by the index could vary a bit from the suggested gains.
What the golden cross? This is when the short term moving average crosses over the medium moving average and both cross over the long term moving average. The medium-term moving average has crossed over the long-term one and the short term is making its way to cross the medium one with it already cross over the long term.

Oil prices plunged

Jamaica and the majority of Caribbean nations got some great news on Sunday, with the price of oil plunging 27 percent to just over US$30 per barrel.

Oil prices fell sharply in 2016 as well

Oil traded over $65 per barrel late 2019 but has fallen to the low US$50 recently. The price opened at US$32.87 and traded as low as $30 on Sunday, Jamaica time. The price is back to where it was in early 2016 when it tumbled from just over US$100 per barrel. According to Market Watch, a USA publication, Asian stock markets plunged Monday after global oil prices nosedived on worries a global economy weakened by a virus outbreak might be awash in too much crude.
Jamaica, a heavy oil user, imports around 20 million barrels per year and could save nearly US$400 million per annum if the price were to stay around these levels. If the price holds, it will result in gasoline price dropping, electricity bills will fall, but the government will collect far less taxes on petroleum.

Jamaican stocks set for 2020 growth

The Jamaica Stock Exchange saw divergent movement in the three markets it operates, in 2019. While the major focus was on the Main Market performance with 34 percent gain, the US dollar market actually outdid it with gains of 40 percent but the Junior Market was nowhere to be found.

Almost clear skies for the Jamaica Stock Exchange

The Junior Market had its worse performance in three years, with an increase of just 3.4 percent. Last year was the fifth year of annual gains for the Jamaica Stock Exchange. In the past, the five-year mark meant that the market had peaked and was due for a major correction. Technical and fundamental indicators are not pointing in this direction currently.
Technically, the Main Market has 900,000 plus points on its radar, 60 percent away for the All Jamaica Composite index from the start of the year. The market is being steered by an upward sloping support line. There is no indication of any major resistance until it passes the 900,000 points mark.
The PE for the Main Market based on 2020 earnings is down to 16 times, 25 percent below the 2019 PE at the end of 2019 of 20.  NCB Financial performance is going be crucial to the performance of the market index as it controls so much of the market capitalization. In the end, the index is just a barometer of the movement in the value of all the companies listed and investors would be well advised to focus on the quality of stocks that will provide good returns. IC forecast shows 13 to 15 companies that could double in price during the next 15 months in the Main Market starting in January.
The Junior Market is poised to move much higher on improved profits for 2019 and 2020, even as some 2019 results were disappointing and did not stimulate investors to acquire these stocks in increasing volumes with many of them still undervalued relative to values in the Main market. Improvement in profitability will convince investors that there are excellent values in this segment of the market.
There are 28 Junior Market stocks with the potential to deliver gains between 100 to 600 percent in 2020 and up to March 2021. The major reason for the large group is the lack of performance in the market in 2019. Investors placed a major focus on the Main Market, driving the PE ration to 21 compared to 14 for the Junior Market. At the end of 2018, both markets were trading around 17 times 2018 earnings. This divergence, suggests that there are good opportunities to profit from in 2020, as investors move to take advantage of undervalued stocks when
The forecast assumes that economic growth will continue during the year around the 2 percent level and that interest rates will remain close to current levels with Treasury bills rates staying under 2 percent. A major factor, that is important in viewing the market is the number of companies that are enjoying strong growth in sales as well as those that are expanding or likely to do so. Such developments bode well for major gains in profit going forward.
Investors should not ignore companies that performed poorly in 2019 but could enjoy a strong turnaround in 2020. The Investors’ Choice 80:20 rule based on 40 years of data, shows more stocks rising form the bottom 10 worse performers in a year and surge into the TOP 10 the following year, while an average of 80 percent of those in the TOP 10 fail to repeat in the following year and since 2016 the average is just one.
With the likelihood of twenty IPOs planned for 2020, investors can look for a series of disruptions in the upward trajectory of the market. For the past two years, there were signs that on each occasion of popular initial public offers, prices of existing stocks came under pressure.  The most recent were the three issues for 2020 to date. This phenomenon is most pronounced in the Junior Market that is far less liquid than the Main Market. The pullback of prices caused by the sell-off to fund IPOs also provides opportunities for investors who may want to pick up existing listed stocks at bargain prices.

Jamaica GDP set to gain in 2020

Economic growth for Jamaica is expected to remain positive in 2020 following increases in 2019, even as the closure of Alpart acts as a drag on the economic growth rate in the first half of the year.
Jamaica will see steady growth with improvements in several areas during the year, with increased output for manufacturing, tourism, finances and other service sectors such as BPO and entertainment. The continuation of major road construction projects and many new buildings going up in the country will also aid the continuation of economic growth during the year.
Growth in stopover arrivals bounced to 7.6 percent in the December quarter up from a slightly slower summer months with gains of 4.5 percent, 2019 finished with an overall increase of 6.5 percent in stopover arrivals and bettered the 4.6 percent increase in 2018 over 2017. The increase in 2019 suggests a very strong demand for the Jamaican product. Increased demand for the product provides room for greater revenues per room as hotels do not have to do a deep discount of rates as they did in the early part of the last decade. The sector should continue to grow around 7 to 10 percent for the coming year and bring in addition inflows around US$400 million over 2020. It could do even more with the strong demand for rooms that could see hotels getting average rates that are higher than in 2019.
Concerns regarding the coronavirus are worth watching. If the spread in the west is more broad-based than it currently the case, it could negatively affect visitor arrival numbers to Jamaica.
Data out of Statin indicates a 4.9 percent increased output in the manufacturing sector for the September quarter, helped by gains in PetroJam production. That is faster than the July quarter, with growth of 3.2 percent and the first quarter growth with negative 1.3 percent following a 2.4 percent increase in the December 2018 quarter. The trend is positive for the manufacturing sector and augurs well for a good increase in 2020. Continued growth in loan financing and increasing interest of companies seeking fresh long-term capital through the capital market are big positives for the business sector in 2020 and beyond. The Manufacturing sector’s use of borrowed funds, excluding cement, was consistent with 20 percent increased borrowing in 2019 and 2018.
An important thrust in Jamaica’s economic development is the increasing number of companies raising long-term capital and listing on the Jamaica Stock Exchange. Increased long-term capital is an important move in getting greater productivity and production of goods and services out of local businesses that will help greater economic growth in the current year and beyond. Increased listings provide investors with viable opportunities to invest capital long term and be an integral part of the wealth creation in society. During 2019, there were several new listings on the Jamaica Stock Exchange. The exchange is forecasting 20 new listings in 2020 based on information provided by stockbrokers. The country will see the majority of companies seeking to list, raising fresh capital for business upgrading and expansion.
Growth in the construction sector will pick up, with the start of the Kingston to Port Antonio road construction and demand continues in the BPO sector that will stimulate the need for more space while adding to employment. Data out of the Bank of Jamaica shows a sharp rise in lending to the sector with an increase of 37 percent over the amount lent in 2018 and well ahead of the 27 increase in 2018 over 2017. The increase in 2019 suggests a further rise in growth in the sector, which should continue into 2020.
The new Old Harbor power plant commenced operation on December 17 and uses natural gas that is much more efficient than the oil-powered plant that was 50 years old and was highly inefficient. The South Jamaica Power Centre plant will provide a more reliable and efficient source of electricity and will result in fewer power disruptions and lower electricity cost as the new plant will use less fuel, fewer workers and requires lower maintenance than the old one, that will be closed in early 2020. With capital expenditure of US$300 million, some of the lower operating costs will be eaten up by interest and depreciation costs. JPS quarterly financial gave a glimpse of what to expect from the switch over with a 10 percent drop in fuel cost for the quarter even as the official switch over took place in mid-December.
The Foreign exchange market went through a number of changes as the central bank reduced the compulsory take from the market from 25 percent down to 20 percent for dealers and 15 percent for Cambios. In effect, the central bank bought no funds from the market through its weekly intervention tool and had no scheduled sale to the market. About four bouts of strong demand resulted in BOJ intervening by selling funds to the market. Notwithstanding, the interventions, the central bank ended the year with the NIR rising from US$3.005 billion at the end of December 2018 to US$3,16 billion after the NIR sank to US$2.95 billion in July.
Over the course of 2019, the exchange rate moved from $127.72 to US$1 at the end of 2018 to end 2019 at J$132.58 to US$1, after it reached its lowest level of J$141.89 to the US dollar on November. The NIR movement for 2019 suggests that the market is in a fairly balanced position. The country has periods when demand and supplies are higher than at other times and the two may not coincide thus creating some disquiet. There are other times when capital flows can impact the market positively or negatively. Unexpected capital flows can create a serious temporary imbalance in the system and may warrant BOJ’s intervention as occurred on a number of occasions over the last twelve months.

Growth in tourism expected in 2020

Money Market rates have been down and “This decline was also related to the increased supply of  liquid assets during the quarter, given the maturity of GOJ bonds over the period.” Interest rates have been generally trending downwards from April of 2019, following sharp falls in 2018.
Spike in the exchange rate of the Jamaican dollar to the US dollar in the last quarter of the year put added pressure on prices and pushed inflation rate for the year to 6.2 percent, well above the 4.6 percent for the last 12 months to November 2019. Inflation for January dropped sharply by 1.1 percent as the FX rate impact was not present with the Jamaican dollar appreciated. Movements of the local currency accounted for a large part of increased inflation in 2019. The natural level of inflation is in the two to three percent range. The inflation rate should move back to more moderate levels in 2020 than it ended in 2019.
Government normal revenues up to November were running 7.5 percent ahead of the $373 billion intakes forecasted, with inflows at $400 billion to December 2019. This increase is after the government removed or reduced taxes at the start of the 2020 fiscal year with no new taxes levied. The preliminary guideline for the 2021 fiscal year, is for increased expenditure amounting to $18 billion in non-interest expenditure, but that is likely to be well below a probably $30 billion increase in normal revenues. With interest cost on government debt set to fall below that of the 2020 fiscal year, following the sharp fall in interest rates during 2019. The government will have room to increase spending in an election year. There is likely to be increased in capital spending, to be well ahead of the $75 billion projected for 2020, the Ministry of Finance instructions suggest for fiscal 2021.
Unemployment rates continue to fall, with the October 2019 unemployment rate down to 7.2 percent, the lowest on record. Labour Market conditions are projected to continue improving for the next eight quarters, the country’s central bank contends “the expected improvement reflects employment growth in manufacturing, finance & insurance, and business process outsourcing.” The Statistical Institute of Jamaica data shows the number of unemployed dropped to 96,700 persons in October with the number employed rising to 1.248 million persons. Based on the trend seen over the last three years, the unemployment rate should drop a possible one-percentage-point in 2020 compared to 2019 putting the unemployment around 6 to 6.5 percent. What is important about this improvement is the increase in the number of employed persons that will lead to increased demand in the economy, helping to stimulate increased growth levels.
Crime continues to be a major negative on the country acting as additional taxes on the wider economy, unfortunately, this major negative will continue to be present for some time to come.

2020 IPOs offer opportunities but

Investors can look forward to 20 new listings for the Jamaica Stock Exchange in 2020, split equally between Junior and Main Market stocks, information from the Jamaica Stock Exchange indicates.
The final number could be more, or it could end being less than the above number. Over the past two years, offers of new shares on the market affected demand for stocks already listed on the exchange at the time of the offering, as some investors disposed of exiting stocks to raise funds to invest in the new offerings. Switching stocks had more impact in the Junior Market than the Main Market. Investors can expect more volatility this year if the new offers come close to the number mentioned above. The sell-off of existing stocks offers investor opportunities to pick up some good quality stocks at bargain prices.
First Rock is the first issue to come to the market to take up a large sum to expand its operation with more real estate acquisitions. Government-owned Trans-Jamaican Highway comes to market and could pull $14 billion from the market, and could add several thousand new investors to the market as the publicity associated with the issue attracts new investors. Caribbean Assurance Brokers is the third for 2020 and as they seek $100 million in new capital. Alliance Financial Services’ initial public offer is scheduled to come in February or early March, with the broker being JMMB Securities.
Others that expressed an interest in 2019, to list include, Tropical Battery, AJAS, Marathon Insurance Brokers, ARC Manufacturing, Express Fitness. Government of Jamaica’s ownership in the Jamaica Public Service Company, Jamaica Mortgage Bank, Factories Corporation, while UDC should have some entities that should go as well.
Grace Kennedy Capital Market
has five issues working on to come to market during the year; one is said to be in the food flavouring business.